Unit 11 - Title Closing and Costs

seller's debits

-brokers commission -delinquent taxes -document preparation fees -loan balance -pest inspection -soil test -survey -termite treatment -transfer tax -unpaid utility bills

seller's credits

-contract sales price -items paid for in advance, such as insurance premiums

seller closing costs

-transfer taxes (state and local) -brokers commission -attorney fees -recording documents to clear the title -satisfaction of existing liens -special fees, such as co-op or condo fees

assessments

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title

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title search

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365 day method

1. identify an item and the amount needing to be prorated 2. divide by 365 to get the daily rate (divide by 366 in a leap year) 3. multiply the daily rate by the number of days the seller owned the property before closing to get the sellers share 4. subtract the sellers prorated amount from the starting amount to get the buyers prorated amount ex: buyers greg and jane have arranged to take over kathy and al's insurance policy. premium is $550/year paid in advance on march 1. closing on the property is set for june 11. what is kathy and al's share of the insurance cost? total amount: $550.00 daily amount (550/365) = $1.51 sellers share = $155.53 $1.51 x 103 days (march 1 through june 11) = $155.53 buyers share = $394.47 $550 - $155.52 = $394.47 ex2: paul will get the second quarter water bill at the end of June. the bill is $39/quarter. If closing is on May 7, what will be Paul's share of the bill? $39/91 days = $.43 per day. $.43 x 54 days (pauls share of the 91 days) = $23.22

proration math: 12 month/30 day period

12-month/30-day method: 1. identify an item and the amount needing to be prorated 2. divide by 12 to get the monthly rate 3. divide by 30 to get a daily rate 4. multiply the monthly rate by the number of months the seller owned the property before closing to get the months amount due 5. multiply the daily rate by the number of days the seller owned the property in the closing month to get the amount due for the closing month 6. add the two amounts to get the prorated amount for the seller 7. subtract the seller's prorated amount from the starting amount to get the buyers prorated amount. total amount: $1,950.00 monthly amount ($1,950 / 12) = $162.50 daily amount (162.50 / 30) = $5.42 seller's share = ***$742.14*** $162.50 x 4 months (Jan-Apr) = $650 $5.42 x 17 days (may 1-17) = $92.14 $650 + $92.14 = $742.14 buyers share = ***$1,207.86*** $1,950 - $742.14 = $1,207.86 since the buyers pay the taxes at the end of the year, the sellers share of $742.14 will be shown as a debit to the seller and a credit to the buyer. ex2: sally and sam have sold their home to tina and max. the closing is set for august 23. the insurance policy of $1,700 was prepaid. Using the 12-month/30-day method, what will be Tina and Max's share of the insurance expense and how will it be handled on the settlement statement? total amount: $1,700 monthly amount: 1,700 / 12 = $141.67 daily amount: $141.67 / 30 = $4.72 sellers share: $141.72 x jan - july (7 months) = $991.69 4.72 x aug1-23 (23 days) = $108.56 $991.67 + 108.56 = $1,100.25 buyer's share: $1700 - 1,100.65 = $599.75 shown as credit to seller and debited to buyer.

actual notice

actual knowledge that a person has about the existence of a particular fact.

closing statement

aka settlement statement. detailed accounting of the transaction that is prepared before closing by the closing agent. shows all cash received, all charges and credits made and all cash paid out. list of debits and credits for both the buyer and the seller. -debit is money that the buyer and seller need to pay at closing -credit is money that the buyer or seller receives at closing, either because it was already paid, its being reimbursed or there is a promise to pay.

title insurance

combines abstracting process with an insurance program.... guarantees the validity and accuracy of the title search -warrants to "make good" any loss arising from a defect in the title or from any liens or encumbrances on the property.

proration

expenses paid at closing must be prorated or divided proportionally between the buyer and the seller. -real estate taxes -insurance -fuel -water and sewage charges -rent -security deposits any item that is prorated is shown on the settlement statement as a debit to one party and a credit to the other party for the same amount

accrued expenses

expenses that the seller incurred but have not yet been billed for at the time of closing. these items are paid in arrears. ex: when you get at bill in the mail. it shows you charges from a certain time period. charges belong to the seller, but you will be paying the bill. sooo...the buyer will get credit and the seller will get a debit.

real estate settlement procedures act (RESPA)

greatly benefits consumers during the settlement process. makes sure that the parties in transactions receive the correct numbers pertaining to their closing costs. -gives buyer the right to review the completed settlement statement one business day prior to closing. -specifically prohibits any payment or receiving of fees or kickbacks when a service has not been rendered.

debits

money owed.

credits

money paid.

marketable title

one that is so free of defects that the buyer is certain he or she will not have to defend the title.

evidence of title

ownership of property.

prepaid expenses

paid for in advance, so the buyer will owe the seller part of the payment for items paid in advance, the buyer will receive a debit and the seller will receive a credit

survey

purchaser or purchaser's lender or title company may require a SURVEY to verify the location and size of the property.

constructive notice

recording the deed to a property gives an owner protection from any other titles to the property that are not recorded in the public record...this is done through constructive notice. aka legal notice... knowledge of a fact that a person could have or should have obtained. -recordation of ownership documents in public records, specifically title records

new york real property transfer tax (RPTT)

sellers who sell residential property in nyc will have to pay an additional tax. if the property sells for 500,000 or less, the tax is computed at 1% of the selling price. if it sells for over 500,000 then the tax is 1.425% if the 575,000 property was located in nyc, the additional tax would be: $575,000 x 1.425% = 8,193.75 seller of prop would ose 2,300 in state transfer tax and 8,193.75 in nyc transfer tax for a total of $10,493.75

chain of title

succession of property owners of record dating back to the original grant of title from the state to a private party -if there is a missing link, the chain is said to be broken, resulting in a clouded title to the property -to remove the cloud, an owner may need to initiate a suit to quiet title, which clears the title record of any unrecorded claims

real estate transfer tax

tax imposed on any deed or instrument which conveys interest in real property in NY state. transfer tax is known as conveyance tax or as revenue stamps. *in NY, the amount of tax is $4.00 per $1,000 of purchase price ex: sale price of property is $575,000. transfer tax is $2,300 575,000/1,000 = 575 575 x 4 = 2,300 ex2: sale price of property: 323,900. assumed mortgage is 75,000. transfer tax is 995.60 323,900 - 75,000 = 248,900 248,900 / 1000 = 248.90 248.90 x 4 = 995.60

title closing

the culmination of the real estate transaction. -buyer completes his or her financing arrangements (referred to as closing the loan) -the seller transfers the title -both the buyer and seller pay the necessary taxes, fees, and other charges

abstract of title

written, chronological summary of the property's title records and other public records affecting rights and interests in the property